9/19/2008 @ 12:00PM

Asia's 200 Best Under A Billion

Fears of a U.S. recession and political instability rattled the gilded economies of Asian markets in recent months and disrupted steady growth for many of the region’s best-known companies.

Major indexes in Hong Kong, Japan, Korea and Australia each fell more than 20% in the past year, and China’s mainland Shanghai index today is lower by more than half. Shares of small and mid-size enterprises (publicly listed companies with sales under $1 billion) have not been spared: In aggregate, members of our 2007 list of the region’s best were down 32% at print time, versus 33% for FTSE’s comparable index. Since 2005, our list has outperformed its benchmark 40% to 7.2%.

While sliding share prices have clipped the personal fortunes held by insiders at companies on last year’s list–the Lee family of China’s Lee & Man Paper Manufacturing saw their holdings fall from over $3 billion to just $588 million–others were more prescient. Chinese Olympic hero Li Ning sold over half of his $1.3 billion stake in the eponymous sports apparel company he founded, as shares neared an all-time high in the fourth quarter of 2007. The stock has since fallen more than 40%.

Despite diminished returns, companies on this year’s list negotiated the pitfalls of early 2008 to increase sales and profits–88 in mainland China, Hong Kong and Taiwan alone. Did the lucky 8/8/08 opening date of the Olympics have something to do with it? To be sure, several companies benefited from this year’s Olympics. Advertising firms like Hong Kong’s
Focus Media
and Li Ning and rival China Hongxing Sports received a boost, as did companies that fed and transported tourists pouring into China and Southeast Asia.

Consumerism was again a force in 2007, helping results at the likes of Thai broadcaster BEC World, wedding planner Novarese and online restaurant guide Gourmet Navigator, both in Japan. Booming demand for mobile communications technology drove profits at South Korea’s Com2uS, Jumbuck Entertainment of Australia and China 3C, while education services from South Korea’s Megastudy, Singapore’s Raffles Education and India’s Educomp also feature prominently.

A shrinking Japanese economy didn’t prevent three native sons on last year’s list from graduating. Hirose Electric, Sysmex and Yamato Kogyo all managed sales of over $1 billion during the last 12 months and were joined by India’s Asian Paints, which moves on after appearing in five of our last six editions.

Judging from its performance relative to the regional benchmark, our list has historically been a good place for investors to get ideas about Asian investments. That could prove particularly true this year. Members of our 2008 list have proven themselves capable of navigating stormy economies thus far–a good sign should global growth continue to sag. Companies focused on growing slices of their economy, like a rising consumer class and clean energy, should also fare better during a slowdown. Lastly, valuations have retreated from the heady levels of 2007: Price-to-earnings multiples for companies on this year’s list averaged just 15.6, or 16% cheaper than last year.